<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
================================================================================
FORM 8-K/A
AMENDMENT NO. 1
TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): October 31, 1996
MERITAGE HOSPITALITY GROUP INC.
(Exact Name of Registrant as Specified in Charter)
MICHIGAN
(State or Other Jurisdiction
of Incorporation)
0-17442 38-2730460
(Commission File Number) (IRS Employer
Identification Number)
40 PEARL STREET, N.W., SUITE 900
GRAND RAPIDS, MICHIGAN 49503
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (616) 776-2600
================================================================================
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On September 17, 1996, Meritage Hospitality Group Inc. (the "Company") commenced
a tender offer to acquire 480 units of the Wendy's of West Michigan Limited
Partnership (the "Partnership") in exchange for $7,000 per limited partnership
unit. The Partnership operates 26 "Wendy's Old-Fashioned Hamburgers" restaurants
in West Michigan. The Partnership reported sales of $25.4 million in 1995 and
has approximately 900 employees. If more than 480 limited partnership units were
validly tendered, the 480 units would be accepted on a first-come, first-served
basis. On September 17, 1996, the Company owned 157.25 Partnership units, or
approximately 12.5% of the Partnership's outstanding limited partnership units.
The tender offer expired as scheduled on October 31, 1996. A total of 698.75
limited partnership units were deposited. The Company accepted 482.55 validly
tendered units on a first-come, first-served basis pursuant to Securities and
Exchange Commission Rule 14e-1(b), thereby giving the Company 639.8
(approximately 50.9%) of the outstanding limited partnership units. The Company
thereafter transferred all of its limited partnership units to MHG Food Service
Inc., a wholly owned subsidiary of the Company.
Approximately $3,450,000 (including costs) was required to commence and close
the tender offer. The Company obtained a $3,000,000 mortgage loan from Great
American Life Insurance Company, the same entity that refinanced the Company's
long-term debt in February 1996. The remaining $450,000 was funded by the
Company from available cash and cash equivalents.
The Company entered into an agreement on October 21, 1996, to acquire the
General Partnership Interest in the Partnership. This acquisition is conditioned
upon, among other things, the approval of Wendy's International, Inc., the
franchisor of the Wendy's restaurants operated by the Partnership. The Company's
ultimate objective is to acquire all of the outstanding Partnership units and
continue the operation of the Partnership's business.
2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements:
1) Audited financial statements of Wendy's of West Michigan Limited
Partnership as filed with the Securities and Exchange Commission
in the Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995. See "Contents" on page F-2.
2) Unaudited financial statements of Wendy's of West Michigan Limited
Partnership for the nine months ended September 30, 1996. See
"Index to Unaudited Financial Statements" on page F-21.
(b) Pro Forma Financial Information:
1) Pro forma financial statements of Meritage Hospitality Group Inc. and
Subsidiaries. See "Index to Unaudited Pro Forma Consolidated
Financial Statements" on page F-28.
3
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
MERITAGE HOSPITALITY GROUP INC.
Dated: December 31, 1996 By /s/ Christopher B. Hewett
---------------------------------
Christopher B. Hewett
President and Chief Executive Officer
4
<PAGE> 5
WENDY'S OF WEST MICHIGAN
LIMITED PARTNERSHIP
----------------------------------------------------
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
F-1
<PAGE> 6
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
Contents
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT F-3 - F-4
FINANCIAL STATEMENTS
Balance Sheets F-5 - F-6
Statements of Income F-7 - F-8
Statements of Changes in Partners' Equity F-9
Statements of Cash Flows F-10 - F-11
Notes to Financial Statements F-12 - F-20
F-2
<PAGE> 7
INDEPENDENT AUDITORS' REPORT
To the Partners
Wendy's of West Michigan
Limited Partnership
Kalamazoo, Michigan
We have audited the accompanying balance sheets of Wendy's of West Michigan
Limited Partnership as of December 31, 1995 and 1994, and the related statements
of income, changes in partners' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wendy's of West Michigan
Limited Partnership at December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
BDO Seidman, L.L.P.
February 6, 1996
F-3
<PAGE> 8
INDEPENDENT AUDITORS' REPORT
FEBRUARY 8, 1994
To the Partners
Wendy's of West Michigan Limited Partnership
Kalamazoo, Michigan
We have audited the accompanying balance sheet (not presented herein) of Wendy's
of West Michigan Limited Partnership as of December 31, 1993, and the related
statements of operations, changes in partners' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wendy's of West Michigan
Limited Partnership as of December 31, 1993, and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
Rehmann Robson
F-4
<PAGE> 9
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
BALANCE SHEETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
December 31,
- ---------------------------------------------------------------------------------------------
ASSETS (Note 3)
<S> <C> <C>
CURRENT ASSETS
Cash $ 411,198 $ 776,042
Receivables, including amounts due from related parties 53,887 67,568
Inventories 145,807 162,775
Prepaid expenses 139,202 164,631
- ---------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 750,094 1,171,016
- ---------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Land 749,000 870,000
Leasehold improvements 2,156,926 2,094,281
Buildings and improvements 2,398,127 2,399,456
Restaurant equipment 3,420,269 3,071,978
Office equipment 175,644 145,017
Vehicles 83,826 69,213
Leased property under capital leases (Note 4) 2,825,338 2,825,338
- ---------------------------------------------------------------------------------------------
11,809,130 11,475,283
Less accumulated depreciation and amortization 6,137,807 5,542,016
- ---------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 5,671,323 5,933,267
- ---------------------------------------------------------------------------------------------
OTHER ASSETS
Loan costs, net of amortization of $20,914 and $52,653 63,534 60,318
Goodwill, net of amortization of $1,799,590 and $1,601,470 2,162,697 2,360,817
Franchise fees, net of amortization of $365,643 and $326,930 184,357 173,070
- ---------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 2,410,588 2,594,205
- ---------------------------------------------------------------------------------------------
$ 8,832,005 $ 9,698,488
- ---------------------------------------------------------------------------------------------
</TABLE>
F-5
<PAGE> 10
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1995 1994
- ---------------------------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Note payable (Note 2) $ - $ 102,724
Accounts payable 785,355 794,036
Accruals:
Salaries and wages 305,044 283,653
Taxes 293,705 329,526
Percentage rent 79,816 86,396
Other current liabilities, including amounts due to related parties 38,963 50,197
Current maturities of obligations under capital leases (Note 4) 159,572 142,920
Current maturities of long-term debt (Note 3) - 205,973
- ---------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,662,455 1,995,425
OBLIGATIONS UNDER CAPITAL LEASES, less current maturities (Note 4) 1,808,828 1,968,400
LONG-TERM DEBT, less current maturities (Note 3) 2,500,340 2,809,480
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 5,971,623 6,773,305
- ---------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 1 and 4)
PARTNERS' EQUITY
Limited partners 2,891,712 2,955,865
General partner (31,330) (30,682)
- ---------------------------------------------------------------------------------------------------
TOTAL PARTNERS' EQUITY 2,860,382 2,925,183
- ---------------------------------------------------------------------------------------------------
$ 8,832,005 $ 9,698,488
- ---------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
F-6
<PAGE> 11
<TABLE>
<CAPTION>
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
STATEMENTS OF INCOME
- --------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 25,364,596 $ 24,701,627 $ 23,545,381
COST OF SALES 7,390,886 7,295,008 7,187,589
- --------------------------------------------------------------------------------------------------------------------
Gross profit 17,973,710 17,406,619 16,357,792
- --------------------------------------------------------------------------------------------------------------------
EXPENSES (INCOME)
Restaurant operating costs, including amounts to related parties:
Labor 6,962,082 6,396,415 5,972,909
Occupancy 2,526,139 2,305,252 2,238,437
Advertising 1,519,903 1,464,845 1,356,553
Food service supplies 1,087,791 1,023,853 984,882
Royalties 1,014,569 988,084 942,073
Other 1,988,597 1,808,872 1,769,385
- --------------------------------------------------------------------------------------------------------------------
Total restaurant operating costs 15,099,081 13,987,321 13,264,239
General and administrative expenses, including amounts 1,250,468 1,278,659 1,202,933
to related parties
Depreciation and amortization 852,803 856,871 970,760
Interest expense 511,939 557,056 621,568
Loss (gain) on sale of assets 1,097 (5,675) -
Other income (236,309) (208,256) (139,754)
Insurance proceeds in excess of net book value of fire (32,377) - -
damaged assets
- --------------------------------------------------------------------------------------------------------------------
Total expenses 17,446,702 16,465,976 15,919,746
- --------------------------------------------------------------------------------------------------------------------
Income before extraordinary item 527,008 940,643 438,046
EXTRAORDINARY ITEM - loss on extinguishment of debt (20,536) - (86,996)
- --------------------------------------------------------------------------------------------------------------------
NET INCOME $ 506,472 $ 940,643 $ 351,050
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
F-7
<PAGE> 12
<TABLE>
<CAPTION>
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
STATEMENT OF INCOME
- ----------------------------------------------------------------------------------------------------------
Year ended December 31, 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income attributed to:
Limited Partners $ 501,407 $ 931,237 $ 347,539
General Partner 5,065 9,406 3,511
- ----------------------------------------------------------------------------------------------------------
$ 506,472 $ 940,643 $ 351,050
- ----------------------------------------------------------------------------------------------------------
Income before extraordinary item per unit of limited $ 415.14 $ 740.96 $ 345.06
partnership interest (1,256.8 units outstanding)
- ----------------------------------------------------------------------------------------------------------
Extraordinary item - loss on extinguishment of debt per $ (16.18) - $ (68.53)
unit of Limited Partnership interest (1,256.8 units
outstanding)
- ----------------------------------------------------------------------------------------------------------
Net income per unit of Limited Partnership $ 398.96 $ 740.96 $ 276.53
interest (1,256.8 units outstanding)
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
F-8
<PAGE> 13
<TABLE>
<CAPTION>
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
- -----------------------------------------------------------------------------------------------
Limited General Total
Partners Partner
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, January 1, 1993 $ 2,054,129 $ (39,791) $ 2,014,338
Net income for the year 347,539 3,511 351,050
- ----------------------------------------------------------------------------------------------
BALANCE, December 31, 1993 2,401,668 (36,280) 2,365,388
Net income for the year 931,237 9,406 940,643
Distributions to partners (377,040) (3,808) (380,848)
- ----------------------------------------------------------------------------------------------
BALANCE, December 31, 1994 2,955,865 (30,682) 2,925,183
Net income for the year 501,407 5,065 506,472
Distributions to partners (565,560) (5,713) (571,273)
- ----------------------------------------------------------------------------------------------
BALANCE, December 31, 1995 $ 2,891,712 $ (31,330) $ 2,860,382
- ----------------------------------------------------------------------------------------------
See accompanying notes to financial statements
</TABLE>
F-9
<PAGE> 14
<TABLE>
<CAPTION>
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
- ---------------------------------------------------------------------------------------------
Year ended December 31, 1995 1994 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 506,472 $ 940,643 $ 351,050
Adjustments to reconcile net income to net cash
from operating activities:
Loan costs written off due to refinancing 20,536 - 36,591
Loan costs incurred due to refinancing (31,477) - (52,971)
Depreciation and amortization 852,803 856,871 970,760
Loss (gain) on sale of property and equipment 1,097 (5,675) -
Undepreciated cost of equipment destroyed 1,194 - -
by fire
Changes in operating assets and liabilities:
Receivables 13,681 (23,268) 91,350
Inventories 16,968 18,242 (21,411)
Prepaid expenses 25,429 (41,188) (28,434)
Accounts payable (8,681) (12,976) (232,126)
Accrued salaries and wages 21,391 203,215 (178,342)
Accrued taxes (35,821) (61,574) (371,924)
Accrued percentage rent (6,580) 1,596 (5,095)
Other current liabilities (11,234) (68,239) 67,849
- ---------------------------------------------------------------------------------------------
Net cash from operating activities 1,365,778 1,807,647 627,297
- ---------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sale of property and equipment 122,500 24,961 -
Additions to property and equipment (471,092) (690,879) (871,857)
Payment of franchise fees (50,000) (25,000) -
- ---------------------------------------------------------------------------------------------
Net cash for investing activities (398,592) (690,918) (871,857)
- ---------------------------------------------------------------------------------------------
</TABLE>
F-10
<PAGE> 15
<TABLE>
<CAPTION>
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------
Year ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from long-term debt $ 2,022,499 $ - $ 1,800,000
Repayment of short-term notes payable (102,724) (1,776) (1,086,468)
Repayment of long-term debt (2,537,612) (239,521) (366,743)
Payments made on obligations under capital leases (142,920) (128,005) (114,647)
Distributions to partners (571,273) (380,848) -
- -------------------------------------------------------------------------------------------------------------
Net cash from (for) financing activities (1,332,030) (750,150) 232,142
- -------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (364,844) 366,579 (12,418)
CASH, beginning of year 776,042 409,463 421,881
- -------------------------------------------------------------------------------------------------------------
CASH, end of year $ 411,198 $ 776,042 $ 409,463
- -------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
Cash paid for interest expense $ 499,673 $ 558,000 $ 644,000
- -------------------------------------------------------------------------------------------------------------
Non-cash investing and financing transactions:
Retirement of note payable - bank with new
revolving term note payable - bank 1,331,221 - -
- -------------------------------------------------------------------------------------------------------------
Purchase of land:
Cost of land - 121,000 -
Short-term note payable - 104,500 -
- -------------------------------------------------------------------------------------------------------------
Cash down payment for land - 16,500 -
- -------------------------------------------------------------------------------------------------------------
Purchase of vehicle:
Cost of vehicle - 10,482 -
Trade-in allowance - 7,019 -
- -------------------------------------------------------------------------------------------------------------
Cash paid for vehicle - 3,463 -
- -------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements
</TABLE>
F-11
<PAGE> 16
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. SUMMARY OF ORGANIZATION
SIGNIFICANT
ACCOUNTING POLICIES Wendy's of West Michigan Limited Partnership
(Partnership) is a Michigan limited partnership
organized on July 31, 1986. The Partnership
operates 25 Wendy's Old Fashioned Hamburger
restaurants in western Michigan under franchise
agreements with Wendy's International, Inc. Subject
to the consent of the Limited Partners where
required by the Partnership Agreement, the General
Partner has the exclusive right to manage the
Partnership. The Limited Partners are not liable
for Partnership debts beyond the amount of their
original contributions and share of undistributed
net profits.
The Partnership Agreement provides that the Limited
Partners (as a group) are to share in 99% of the
Partnership's net income or loss, except as
discussed in the following paragraph, and receive
99% of all cash flow from operations as defined by
the Partnership Agreement.
The net profits of the Partnership arising from the
sale or other disposition, whether as a result of
foreclosure, condemnation or otherwise, of all or
part of the property, shall be allocated among the
Partners in accordance with the provisions of the
Partnership Agreement.
A Partnership administration fee is payable to the
General Partner equal to 2% of gross partnership
revenues from operations, as defined in the
Partnership Agreement. The General Partner has
elected to reduce the Partnership administration
fee to the General Partner from 2% of gross
partnership revenues from operations to $160,000,
$160,000 and $210,000 for 1995, 1994 and 1993,
respectively.
The Partnership shall exist until December 31,
2026, unless terminated sooner as provided in the
Partnership Agreement. A Limited Partner may, in
accordance with the agreement, assign his interest
in the Partnership by a properly executed and
acknowledged instrument, the terms of which are not
inconsistent with or contrary to the provisions of
the Partnership Agreement and are otherwise
satisfactory to the General Partner, subject to the
approval of the General Partner.
F-12
<PAGE> 17
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Competition in the quick-service restaurant
industry is intense. Most of the Partnership's
restaurants are in close proximity to other quick-
service restaurants which compete on the basis of
price, service and product quality and variety. The
General Partner believes that the Partnership
competes effectively in these areas.
USE OF ESTIMATES
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial
statements and the reported amounts of revenues and
expenses during the reporting period. Actual
results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of cost (first
in, first out) or market. Inventories consist of
restaurant food items and food serving supplies.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost.
Expenditures for renewals and betterments which
extend the originally estimated economic life of
assets are capitalized. Expenditures for
maintenance or repairs are charged to expense when
incurred. For financial reporting purposes,
depreciation is computed using the straight-line
method over the estimated economic lives of the
assets. For tax purposes, useful lives and methods
are used as permitted by the Internal Revenue Code.
Amortization of leasehold improvements is provided
over the primary terms of the various leases.
F-13
<PAGE> 18
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
OTHER ASSETS
In 1995, the Partnership adopted Statement of
Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of. This
statement requires that long-lived assets and
certain identifiable intangibles to be held and
used by an entity be reviewed for impairment
whenever events or changes in circumstances
indicate that the carrying amount of an asset may
not be recoverable. This statement also requires
that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the
lower of carrying amount or fair value less cost to
sell. Adopting this new accounting standard had no
impact on the 1995 financial statements.
Franchise fees for restaurant units are being
amortized over the terms of the individual
restaurant franchise agreements. Loan costs are
being amortized over 120 months, the period of the
loan. All amortization is under the straight-line
method.
The excess of cost over fair value of net assets
acquired (goodwill) is being amortized on the
straight-line method over 240 months. Amortization
expense for goodwill for the years ended December
31, 1995, 1994 and 1993 amounted to $198,120 each
year. The Partnership evaluates the recoverability
of the goodwill whenever events or changes in
circumstances indicate that the carrying amount of
goodwill may not be recoverable and considers
whether the goodwill should be completely or
partially written off or the amortization period
accelerated. The Partnership assesses the
recoverability of goodwill based on undiscounted
estimated future operating cash flows. If the
Partnership determines that the carrying value of
the goodwill has been impaired, the measurement of
the impairment will be based on discounted
estimated future operating cash flows.
F-14
<PAGE> 19
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
Notes to Financial Statements
- --------------------------------------------------------------------------------
FRANCHISE COSTS
Royalties and national advertising costs, based on
a percentage of monthly sales, are charged to
operations as incurred.
CAPITALIZED LEASE OBLIGATIONS
Lease transactions relating to certain restaurant
buildings are classified as capital leases. These
buildings have been capitalized and the related
obligations recorded based on the fair market value
of the buildings at the inception of the leases.
Amounts capitalized are being amortized over the
terms of the leases.
INCOME TAXES
No provision for income taxes has been made in the
accompanying financial statements. A Partner's
share of the income or loss of the Partnership is
includable in the individual tax returns of the
Partners.
The Partnership's tax basis in its net assets
differs from the amount at which its net assets are
reported for financial statement purposes,
principally due to the accounting for capital
leases, goodwill, syndication costs and
depreciation on fixed assets. At December 31, 1995,
the Partnership's tax basis in its net assets,
including goodwill which is not amortizable for tax
purposes, was greater than its basis for financial
statement purposes by approximately $2,900,000. As
a result, aggregate future income for income tax
purposes will be lower than for financial statement
purposes.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of the Partnership's financial
instruments, consisting of cash, receivables,
accounts payable and long-term debt, approximate
their fair value.
2. NOTE PAYABLE The Partnership acquired land under a land contract
in 1994. The land contract requires monthly
payments of $1,000 or more including interest at
9%. The land contract was retired during 1995.
F-15
<PAGE> 20
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
3. LONG-TERM DEBT Long-term debt is summarized as follows:
December 31, 1995 1994
-------------------------------------------------------------
Revolving term note payable - $ 2,500,340 $ -
bank, secured by
substantially all assets of
the Partnership and by the
guaranty of the General
Partner and the personal
guarantees of the shareholders
of the General Partner. The
loan agreement requires
monthly payments of $45,119,
including interest at 1% over
prime (effectively 9.5% at
December 31, 1995) through
February 2005 when any
remaining unpaid principal
will be due. Under the
revolving loan agreement, the
required monthly payments
described above may be offset
by additional borrowings up to
the unused available
borrowings. The total
available borrowings under the
loan agreement was $3,187,126
as of December 31, 1995. The
total available borrowings
decrease monthly based on the
original term note
amortization over 120 months.
The loan agreement also
requires that the Partnership
maintain certain financial
ratios and a minimum tangible
net worth, as defined in the
loan agreement, of
approximately $310,000. The
Partnership was in compliance
with these covenants at
December 31, 1995.
Note payable - bank, secured - $ 1,367,122
by substantially all
assets of the Partnership and
by the personal guarantees of
the shareholders of the
General Partner, requiring
monthly payments of $29,882,
including interest at 2% over
prime. The note was retired
during 1995.
F-16
<PAGE> 21
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
December 31, 1995 1994
--------------------------------------------------------------
Note payable - individual, secured $ - $ 1,525,716
by substantially all assets of
the Partnership, except that
the security interest is
subordinate to the bank note
described above, requiring
monthly payments of interest
only at 10.5% or 2% over
prime, whichever is greater.
The note was retired during
1995.
Covenant not to compete, - $ 122,615
requiring monthly payments of
interest only at 10.5% or 2%
over prime, whichever is
greater. The note was retired
during 1995.
-------------------------------------------------------------
2,500,340 3,015,453
Less current portion - 205,973
-------------------------------------------------------------
Long-term debt, less current $ 2,500,340 $ 2,809,480
portion
-------------------------------------------------------------
The following is a schedule by year of annual maturities
under the loan agreements:
Year ending December 31,
-------------------------------------------------------------
1996 $ -
1997 -
1998 45,265
1999 299,448
2000 332,213
Later years 1,823,414
-------------------------------------------------------------
$ 2,500,340
-------------------------------------------------------------
F-17
<PAGE> 22
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
4. DESCRIPTION OF The Partnership leases land and buildings used in
LEASING ARRANGEMENTS operations under operating agreements, with
(INCLUDING THOSE WITH remaining lease terms (including renewal options
AFFILIATED PARTNERSHIP) of five to thirteen years) ranging from one to
eighteen years. Included in the leases are five
leases with related parties.
Total lease expense (including taxes, insurance
and maintenance when included in rent) related to
all operating leases and all percentage rentals is
as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994 1993
-------------------------------------------------------------------
<S> <C> <C> <C>
Leases with related parties:
Minimum rentals $ 230,848 $ 172,403 $ 154,848
Percentage rentals 150,867 125,957 111,541
Other leases:
Minimum rentals 414,539 415,357 416,363
Percentage rentals 309,228 313,461 289,536
------------------------------------------------------------------
$1,105,482 $1,027,178 $ 972,288
-------------------------------------------------------------------
</TABLE>
Certain restaurant leases (eight restaurant
buildings, excluding land which is accounted for
as an operating lease) have been capitalized.
Minimum future obligations under capital leases
and noncancellable operating leases in effect are
as follows:
F-18
<PAGE> 23
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Operating leases
----------------------
Year ending December 31, Capital Related Others
leases parties
------------------------------------------------------------------
<S> <C> <C> <C>
1996 $ 369,575 $ 252,624 $ 405,803
1997 369,575 228,499 312,291
1998 369,575 96,074 271,633
1999 369,575 54,576 180,240
2000 369,575 54,576 172,440
Later years 1,108,725 231,993 517,320
------------------------------------------------------------------
Total minimum lease 2,956,600 $ 918,342 $1,859,727
obligations
------------------------
Less amount representing 988,200
interest imputed at 11%
------------------------------------------
Present value of minimum $ 1,968,400
lease obligations
------------------------------------------
</TABLE>
The present value of minimum rental obligations is
reflected in the balance sheets as current and
long-term obligations under capital leases.
Accumulated amortization of leased property under
capital leases was $1,495,796 and $1,329,596 at
December 31, 1995 and 1994, respectively.
In addition to minimum future obligations, percentage
rentals may be paid under all restaurant leases on
the basis of percentage of sales in excess of minimum
prescribed amounts.
5. PROFIT-SHARING PLAN The Partnership maintains a 401(k) profit-sharing
plan. The plan covers substantially all employees of
the Partnership who are at least 21 years old and who
have completed at least one year of service (of at
least 1,000 hours) with the Partnership.
Contributions to the plan may be made by the
Partnership (which are purely discretionary in
nature) or by plan participants through elective
salary reductions.
F-19
<PAGE> 24
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Contributions to the plan by the Partnership for the
year ended December 31, 1995, totaled $12,000. There
were no contributions to the plan by the Partnership
for the years ended December 31, 1994 and 1993.
6. SUBSEQUENT EVENT In January 1996, the general partner declared and the
Partnership made a cash distribution to its limited
partners of $100 per limited partnership unit
totaling $126,950.
F-20
<PAGE> 25
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
INDEX TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
FINANCIAL STATEMENTS PAGE NUMBER
- -------------------- -----------
BALANCE SHEET (UNAUDITED) - SEPTEMBER 30, 1996 F-22 - F-23
STATEMENT OF OPERATIONS (UNAUDITED) - FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 F-24
STATEMENT OF CHANGES IN PARTNERS' EQUITY (UNAUDITED)
- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 F-25
STATEMENT OF CASH FLOWS (UNAUDITED) - FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 F-26
NOTE TO UNAUDITED FINANCIAL STATEMENTS F-27
F-21
<PAGE> 26
<TABLE>
<CAPTION>
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1996
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 340,736
Non-trade receivables 121,390
Inventories 157,675
Prepaid expenses 120,912
-----------
TOTAL CURRENT ASSETS 740,713
OTHER ASSETS
- ------------
Cash value of life insurance 60,000
Loan costs 58,332
Goodwill 2,014,107
Franchise fees 160,014
-----------
TOTAL OTHER ASSETS 2,292,453
PROPERTY AND EQUIPMENT
- ----------------------
Land 749,000
Leasehold improvements 2,197,314
Buildings and improvements 2,398,127
Furnishings and equipment 4,028,817
Vehicles 104,944
Leased property under capital leases 2,825,338
-----------
12,303,540
Less accumulated depreciation and amortization 6,589,366
PROPERTY AND EQUIPMENT - NET 5,714,174
-----------
$ 8,747,340
===========
</TABLE>
See note to financial statements
F-22
<PAGE> 27
<TABLE>
<CAPTION>
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
BALANCE SHEET (UNAUDITED)
(CONTINUED)
SEPTEMBER 30, 1996
LIABILITIES AND PARTNERS' EQUITY
<S> <C>
CURRENT LIABILITIES
Accounts payable $ 819,162
Accruals:
Salaries and wages 253,114
Taxes 161,179
Percentage rent 91,473
Other current liabilities 29,828
Current portion of long-term debt 0
Current portion of lease obligations 175,000
----------
TOTAL CURRENT LIABILITIES 1,529,756
LONG-TERM DEBT - exclusive of current portion 2,377,779
LONG-TERM OBLIGATIONS UNDER CAPITAL LEASES -
exclusive of current portion 1,675,384
COMMITMENT AND CONTINGENCIES -
PARTNERS' EQUITY 3,164,421
----------
$8,747,340
==========
</TABLE>
See note to financial statements
F-23
<PAGE> 28
<TABLE>
<CAPTION>
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
---------------- -----------
<S> <C> <C>
Net sales $ 20,016,032 $ 19,264,188
Cost of sales 5,882,696 5,580,690
------------ ------------
Gross Profit 14,133,336 13,683,498
EXPENSES (INCOME)
Restaurant operating costs 11,903,727 11,243,518
General and administrative expenses 856,854 973,613
Depreciation and amortization 629,694 634,441
Interest expense 330,317 394,253
Interest and other income (208,669) (157,120)
------------ ------------
13,511,923 13,088,705
------------ ------------
NET INCOME $ 621,413 $ 594,793
============ ============
Net income attributed to:
Limited Partners $ 615,199 $ 588,845
General Partner 6,214 5,948
------------ ------------
$ 621,413 $ 594,793
============ ============
Net income per unit of Limited Partnership interest
(1256.8 units outstanding) $ 489.50 $ 468.53
============ ============
</TABLE>
See note to financial statements
F-24
<PAGE> 29
<TABLE>
<CAPTION>
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<S> <C>
Balance, January 1, 1996 $ 2,860,382
Net income for the period 621,413
Distribution to partners (317,374)
-----------
Balance, September 30, 1996 $ 3,164,421
===========
</TABLE>
See note to financial statements
F-25
<PAGE> 30
<TABLE>
<CAPTION>
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
<S> <C> <C>
Net income $ 621,413 $ 594,793
Noncash items included in net income:
Loss on extinguishment of debt - 20,536
Depreciation and amortization 629,694 634,441
(Increase) decrease in current assets other than cash (61,081) 40,879
Decrease in accounts payable and other accrued liabilities (148,127) (258,843)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,041,899 1,031,806
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Payment of franchise fees - (25,000)
Proceeds from sale of land - 121,000
Purchase of property and equipment (494,410) (389,844)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (494,410) (293,844)
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Proceeds from long-term debt - 1,991,022
Retirement of long-term debt - (2,343,178)
Payments made on short-term borrowings - (102,724)
Net decrease in long-term debt (revolving term loan) (182,561) -
Payments made on obligations under capital leases (118,016) (105,700)
Distributions to partners (317,374) (571,274)
----------- -----------
NET CASH USED BY FINANCING ACTIVITIES (617,951) (1,131,854)
----------- -----------
NET DECREASE IN CASH (70,462) (393,892)
Cash:
At beginning of period 411,198 776,042
----------- -----------
At end of period $ 340,736 $ 382,150
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $ 369,280 $ 402,445
</TABLE>
See note to financial statements
F-26
<PAGE> 31
WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP
NOTE TO UNAUDITED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
NOTE A - BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position at September 30,
1996 and the results of operations and cash flows for the nine months ended
September 30, 1996 and 1995.
The accompanying financial statements do not include footnotes and
certain financial presentations normally required under generally accepted
accounting principles and therefore, should be read in conjunction with the
audited financial statements included in the Partnership's Form 10-K for the
period ended December 31, 1995 as filed with the Securities and Exchange
Commission. The results of operations for the nine months ended September 30,
1996 are not necessarily indicative of the results to be expected for the full
year.
F-27
<PAGE> 32
MERITAGE HOSPITALITY GROUP INC. & SUBSIDIARIES
INDEX TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS PAGE NUMBER
- -------------------- -----------
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
- AUGUST 31, 1996 F-29
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS - FOR THE NINE MONTHS ENDED AUGUST 31, 1996 F-30
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS - FOR THE YEAR ENDED NOVEMBER 30, 1995 F-31
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS F-32
F-28
<PAGE> 33
<TABLE>
<CAPTION>
MERITAGE HOSPITALITY GROUP INC. & SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AUGUST 31, 1996
MERITAGE WENDY'S OF
HOSPITALITY WEST MICHIGAN PRO
GROUP INC. & LIMITED PRO FORMA FORMA CONSOLIDATED
SUBSIDIARIES PARTNERSHIP ADJUSTMENTS REF. PRO FORMA
-------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,166,096 $340,736 $ (377,850) (1) $ 1,128,982
Accounts Receivable 864,652 121,390 986,042
Inventories 166,842 157,675 324,517
Prepaid Expenses 492,265 120,912 613,177
-------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,689,855 740,713 (377,850) 3,052,718
PROPERTY, PLANT AND EQUIPMENT, NET 14,242,807 5,714,174 19,956,981
DEFERRED INCOME TAXES 437,100 437,100
OTHER ASSETS 1,249,071 278,346 1,527,417
GOODWILL 2,014,107 2,927,357 (2) 4,941,464
INVESTMENT IN UNCONSOLIDATED COMPANY 1,144,375 3,377,850 (1)
(4,522,225) (2)
-------------------------------------------------------------------------------
Total Assets $ 19,763,208 $ 8,747,340 $ 1,405,132 $ 29,915,680
===============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 711,029 $ 819,162 $ 1,530,191
Accrued expenses 829,046 535,594 1,364,640
Current portion of obligations under
capital leases 175,000 175,000
Current portion of long-term debt 583,334 583,334
-------------------------------------------------------------------------------
Total Current Liabilities 2,123,409 1,529,756 3,653,165
OBLIGATIONS UNDER CAPITAL LEASES, EXCLUSIVE
OF CURRENT PORTION 1,675,384 1,675,384
LONG-TERM DEBT, EXCLUSIVE OF CURRENT PORTION 13,967,193 2,377,779 3,000,000 (1) 19,344,972
DEFERRED INCOME TAXES 752,000 752,000
MINORITY INTERESTS 1,569,553 (2) 1,569,553
-------------------------------------------------------------------------------
Total Liabilities 16,842,602 5,582,919 4,569,553 26,995,074
-------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred shares - -
Common shares 31,919 31,919
Partners' equity 3,164,421 (3,164,421) (2)
Additional paid in capital 11,467,316 11,467,316
Note receivable from sale of shares (4,998,515) (4,998,515)
Accumulated deficit (3,580,114) (3,580,114)
-------------------------------------------------------------------------------
Total Shareholders' Equity 2,920,606 3,164,421 (3,164,421) 2,920,606
-------------------------------------------------------------------------------
Total Liabilities & Shareholders' Equity $ 19,763,208 $ 8,747,340 $ 1,405,132 $ 29,915,680
===============================================================================
</TABLE>
See notes to unaudited pro forma financial statements
F-29
<PAGE> 34
<TABLE>
<CAPTION>
MERITAGE HOSPITALITY GROUP INC. & SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED AUGUST 31, 1996
MERITAGE WENDY'S OF
HOSPITALITY WEST MICHIGAN PRO
GROUP INC. & LIMITED PRO FORMA FORMA CONSOLIDATED
SUBSIDIARIES PARTNERSHIP ADJUSTMENTS REF. PRO FORMA
<S> <C> <C> <C> <C> <C>
REVENUE
Room revenue $ 4,828,014 $ 4,828,014
Food and beverage revenue 6,104,500 20,016,032 26,120,532
Telephone revenue 105,715 105,715
Sundry revenue 366,668 366,668
-------------------------------------------------------------------------
Total Revenue 11,404,897 20,016,032 31,420,929
-------------------------------------------------------------------------
COST AND EXPENSES
Cost of food and beverages 2,074,310 5,882,696 7,957,006
Operating expenses 5,560,444 11,903,727 17,464,171
General and administrative expenses 2,328,843 856,854 3,185,697
Other (income) expenses - net 107,990 (199,653) (91,663)
Depreciation and amortization 675,372 629,694 110,000 (4) 1,415,066
-------------------------------------------------------------------------
Total costs and expenses 10,746,959 19,073,318 110,000 29,930,277
-------------------------------------------------------------------------
EARNINGS FROM OPERATIONS 657,938 942,714 (110,000) 1,490,652
OTHER INCOME (EXPENSE)
Interest income 517,382 9,016 526,398
Interest expense (1,194,997) (330,317) (365,625) (3) (1,890,939)
Minority interests in net income (308,221) (5) (308,221)
-------------------------------------------------------------------------
Income (loss) before federal income tax (19,677) 621,413 (783,846) (182,110)
FEDERAL INCOME TAX BENEFIT 6,690 55,310 (6) 62,000
-------------------------------------------------------------------------
Net income (loss) $ (12,987) $621,413 $ (728,536) $ (120,110)
=========================================================================
LOSS PER SHARE $ (0.00) $ (0.04)
=========== ===========
AVERAGE NUMBER OF SHARES OUTSTANDING 3,043,903 3,043,903
=========== ===========
</TABLE>
See notes to unaudited pro forma consolidated financial statements
F-30
<PAGE> 35
<TABLE>
<CAPTION>
MERITAGE HOSPITALITY GROUP INC. & SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1995
MERITAGE WENDY'S OF
HOSPITALITY WEST MICHIGAN PRO
GROUP INC. & LIMITED PRO FORMA FORMA CONSOLIDATED
SUBSIDIARIES PARTNERSHIP ADJUSTMENTS REF. PRO FORMA
<S> <C> <C> <C> <C> <C>
REVENUE
Room revenue $ 5,999,024 $ 5,999,024
Food and beverage revenue 8,245,880 25,364,596 33,610,476
Telephone revenue 46,795 46,795
Sundry revenue 149,321 149,321
-----------------------------------------------------------------------------
Total Revenue 14,441,020 25,364,596 39,805,616
-----------------------------------------------------------------------------
COST AND EXPENSES
Cost of food and beverages 2,863,554 7,390,886 10,254,440
Operating expenses 7,215,061 15,099,081 22,314,142
General and administrative expenses 4,979,621 1,250,468 6,230,089
Other (income) expenses - net (221,689) (221,689)
Depreciation and amortization 1,426,642 852,803 146,000 (4) 2,425,445
-----------------------------------------------------------------------------
Total costs and expenses 16,484,878 24,371,549 146,000 41,002,427
-----------------------------------------------------------------------------
EARNINGS FROM OPERATIONS (2,043,858) 993,047 (146,000) (1,196,811)
OTHER INCOME (EXPENSE)
Gain on sale of property and equipment 241,646 10,744 252,390
Interest income 387,099 14,620 401,719
Interest expense (1,355,389) (511,939) (487,500) (3) (2,354,828)
Minority interests in net income (251,210) (5) (251,210)
-----------------------------------------------------------------------------
Income (loss) before federal income tax (2,770,502) 506,472 (884,710) (3,148,740)
FEDERAL INCOME TAX BENEFIT 721,400 97,600 (6) 819,000
------------------------------------------------------------------------------
Net income (loss) $ (2,049,102) $ 506,472 $ (787,110) $ (2,329,740)
==============================================================================
LOSS PER SHARE $ (1.13) $ (1.28)
============ ============
AVERAGE NUMBER OF SHARES OUTSTANDING 1,815,984 1,815,984
============ ============
</TABLE>
See notes to unaudited pro forma consolidated financial statements
F-31
<PAGE> 36
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
On October 31, 1996 Meritage Hospitality Group Inc. ("the Company") purchased
482.55 limited partnership units of Wendy's of West Michigan Limited Partnership
("the Partnership") pursuant to the terms of a tender offer dated September 17,
1996. Prior to the tender offer, the Company owned 157.25 Partnership units.
Upon completion of the tender offer, the Company owned 639.80 (approximately
50.4%) of the outstanding partnership interests, giving the Company a majority
ownership of the Partnership. The acquisition is accounted for under the
purchase method of accounting.
The unaudited pro forma consolidated balance sheet as of August 31, 1996
reflects these acquisitions as if they occurred on that date.
The unaudited pro forma consolidated statements of operations for the nine
months ended August 31, 1996 and the year ended November 30, 1995 present the
historical results of the Company combined with the Partnership and the pro
forma adjustments as if the Partnership had been acquired on December 1, 1994.
The pro forma financial information should be read in conjunction with the
historical consolidated financial statements and notes thereto contained in the
Company's Form 10-KSB, as amended, for the year ended November 30, 1995 and
the quarterly report on Form 10-QSB for the nine months ended August 31,
1996, and with the historical financial statements of the Partnership included
in this report on Form 8-K. The pro forma results do not reflect any benefit
from economies which might be achieved from combined operations. These pro
forma results do not purport to be indicative of the financial condition or
results of operations that would have occurred had the acquisitions taken place
on the basis presumed above, nor are they indicative of future combined
operations.
The pro forma adjustments are as follows:
1. To record the purchase of the 482.55 Partnership units in connection with
the tender offer, including short-term borrowings to fund the purchase of
the Partnership units.
2. To record goodwill for the amount of the excess purchase price over the net
book value of the Company's equity interest in the net book value of the
Partnership. The entire excess has been allocated to goodwill based on
preliminary estimates which may be revised at a later date.
3. To record interest expense of $365,625 for the nine months ended August 31,
1996 and $487,500 for the year ended November 30, 1995 from borrowings to
fund the purchase of the Partnership units.
4. To record goodwill amortization of $110,000 for the nine months ended August
31, 1996 and $146,000 for the year ended November 30, 1995. The excess
purchase price over the net book value of the Company's equity interest in
the net book value of the Partnership is being amortized over a period of
twenty years.
5. To record the 49.6% minority interest in the earnings of the Partnership.
6. To adjust the federal income tax benefit of the combined operations, after
giving effect to the above adjustments.
F-32
